3 Common 401(k) Mistakes

By consumerist.comJuly 17, 2007

The 401(k) is one of the best ways to maximize your retirement savings. After all, if the company matches your contribution, you start off with a 50% to 100% gain right off the bat. That said, many employees are not making the most of the potential locked in their 401(k)s. Here are some of the most common mistakes, according to Vanguard:

• Only about 10% contribute the maximum amount allowed by the IRS, and just 14% make the extra “catch-up” contributions allowed for those age 50 and older.

• One in five has more than 20% of his or her portfolio invested in company stock–a potentially dangerous level of exposure to a single equity.

• Almost 20% invest only in equities, and almost 15% invest only in fixed-income securities–both signs of inadequate diversification.”

There are some good reasons for not contributing the maximum. For instance, many advisers suggest
href=”http://www.freemoneyfinance.com/2006/11/the_best_allaro.html&#8221;>a specific order for maximizing retirement savings that includes contributing only enough to a 401(k) to get the full employer match, then moving on to a Roth IRA for any remaining savings available. That said, the tips on too much invested in a company stock and limited diversification are certainly issues that can limit the performance and/or increase the risk associated with any 401(k).